Opt Out

Threatened regulation and shareholder disdain haven't
stopped the flow of stock options into executive compensation
plans. But a subtle shift is still underway to reposition stock
options as just one part of a more traditional pay package.

This approach emphasizes compensation strategies such as
pay-for-performance bonuses and restricted stock that tie financial
rewards to individual and corporate success. Restricted stock, for
one, slows the greed factor associated with options by staggering
vesting periods and, in some cases, requiring employees to pay for
the stock.

Unlike options, which don't cost employees anything until
they are exercised, restricted stock makes employees more invested
in long-term corporate performance. "Restricted stock starts
with a value," says Bill Coleman, senior vice president of
compensation at Salary.com in Wellesley, Massachusetts. "An
option on its own isn't worth anything."

Compensating strategies also connect performance and an
employee's financial interests if it's done right.
Rewarding an executive with a cash bonus for a jump in new
customers leaves too much room for acquiring those customers at any
price. A smarter plan puts conditions on reaching goals by limiting
the cost of achieving them and requiring direct increases in
revenue. "Be sure you're not creating incentives that make
your executives act against the company's best interests,"
Coleman says.

Reassessing financial incentives represents an opportunity for a
review that sweetens compensation while maintaining fiscal health.
Perks such as flex time, help with child and elder care, sick days,
free warehouse-club memberships and continuing education convey
corporate concern for employees' lives outside of work in a way
that shapes attitudes at work. "These are quality-of-life
benefits employees favor," says Diane J. Fuchs, an attorney at
the employee benefits practice group Womble Carlyle Sandridge &
Rice PLLC in Washington, DC.

But even as companies tweak their compensation packages, stock
options will likely remain an important part of the mix. Says
Fuchs, "I don't think executives are going to let them
go."